Insights
How much is my business worth? A Texas owner's guide to valuation multiples.
It is the first question almost every owner asks, and the honest answer is "it depends," but not in a way that should frustrate you. The price of your business follows a logic you can understand and, more importantly, influence. Here is how buyers actually arrive at a number.
Value starts with real earnings, not revenue
Owners tend to anchor on revenue. Buyers do not. They start with earnings, usually EBITDA (earnings before interest, taxes, depreciation, and amortization) for larger businesses, or seller's discretionary earnings for smaller owner-run ones. Then they normalize those earnings by adding back personal and one-time expenses that a new owner would not carry: an above-market owner salary, the truck that mostly hauls the family boat, a one-time legal bill. Those are add-backs, and they raise the earnings number the price is built on. The catch is that every add-back has to be documented well enough to survive diligence. A number you cannot prove is a number the buyer discounts.
The multiple is where the real money moves
Once you have clean, normalized earnings, value is roughly earnings times a multiple. That multiple is not random. It reflects risk and durability. Size matters more than owners expect: a business earning 300,000 dollars and one earning 3,000,000 dollars rarely trade on the same multiple, because the larger one is usually less risky to a buyer. Growth, margin strength, recurring revenue, and a management team that runs the place without the owner all push the multiple up. The result is that two businesses with identical revenue can be worth wildly different amounts. The multiple is the story, and the story is something you can shape.
What quietly drags your number down
A handful of issues take money off the table over and over. Customer concentration is the big one: if a single client is 40 percent of revenue, a buyer prices in the risk that they walk after closing. Owner dependence is another: if the relationships, the know-how, and the decisions all live in your head, the buyer is not buying a business, they are buying a job. Messy or cash-basis financials make a buyer assume the worst about what they cannot see. None of these are fatal, but each one is a discount, and most of them take time to fix. That is why the owners who get the strongest numbers start preparing well before they go to market.
Why a Texas owner should care about the gap between asking and getting
A valuation range is a starting point, not a result. What you actually get depends on the process: whether one buyer is making you an offer or several are competing for the deal. A real sell-side process, the kind run through a confidential first conversation and executed with the muscle of an investment bank, is built to create that competition. The financial readiness that supports it, clean books and defensible add-backs, is the unglamorous work that makes the number hold up. If you want the deeper accounting pieces behind this, the Insights library breaks them down one at a time.
So, what is your business actually worth?
The truthful answer is a range, and the range moves based on decisions you control. The fastest way to a real number is to get your earnings normalized, your risks identified, and your story straight, then test it against the market the right way. If you are a Texas owner weighing a sale now or in the next few years, that is exactly the conversation I have every week. Learn how the process works on the Texas business broker page, or just tell me where you are.
This article is general information, not legal, tax, or financial advice. Your situation is specific to you.
Frequently asked questions
How much is my business worth?
Most small and lower middle market businesses are valued as a multiple of normalized earnings, usually EBITDA or seller's discretionary earnings. You take true earnings after owner add-backs, then apply a multiple that reflects size, growth, margins, customer concentration, and how dependent the business is on you. Two businesses with the same revenue can be worth very different amounts.
What is a typical EBITDA multiple when selling a business?
It varies widely by size and industry. Very small owner-run businesses often trade on lower multiples of seller's discretionary earnings, while larger businesses with clean financials, real management, and durable margins command higher EBITDA multiples. Size and risk move the number more than anything else.
What are add-backs in a business valuation?
Add-backs are personal or one-time expenses run through the business that a buyer would not carry forward, such as an owner's above-market salary, personal vehicles, or one-time legal costs. Adding them back shows the true earning power of the business, which raises the base the multiple is applied to. They must be documented to survive diligence.